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Chapter 9 Achieving Operational Excellence and Customer Intimacy: Enterprise Applications 375

has enough “just in case.” These changes ripple throughout the supply chain,
magnifying what started out as a small change from planned orders, creating
excess inventory, production, warehousing, and shipping costs (see Figure 9.3).
For example, Procter & Gamble (P&G) found it had excessively high inven-
tories of its Pampers disposable diapers at various points along its supply chain
because of such distorted information. Although customer purchases in stores
were fairly stable, orders from distributors would spike when P&G offered
aggressive price promotions. Pampers and Pampers’ components accumulated
in warehouses along the supply chain to meet demand that did not actually
exist. To eliminate this problem, P&G revised its marketing, sales, and supply
chain processes and used more accurate demand forecasting.
The bullwhip is tamed by reducing uncertainties about demand and supply
when all members of the supply chain have accurate and up-to-date informa-
tion. If all supply chain members share dynamic information about inventory
levels, schedules, forecasts, and shipments, they have more precise knowl-
edge about how to adjust their sourcing, manufacturing, and distribution
plans. Supply chain management systems provide the kind of information that
helps members of the supply chain make better purchasing and scheduling
decisions.

FIGURE 9.3 THE BULLWHIP EFFECT

Inaccurate information can cause minor fluctuations in demand for a product to be amplified as one moves further back in the supply
chain. Minor fluctuations in retail sales for a product can create excess inventory for distributors, manufacturers, and suppliers.

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